OIG seeks $12.4 million from San Antonio's Methodist Hospital, mostly over inpatient rehab admissions; hospital disputes extrapolation

The HHS Office of Inspector General (OIG) has recommended that Methodist Hospital in San Antonio refund $12,499,714 to Medicare, after a sample of 100 claims turned up 27 billing errors worth $256,926 [1]. Almost all of those sample dollars came from one service line: inpatient rehabilitation. The hospital rejected the refund and challenged the audit’s method, its medical reviewer and whether the claims were lawfully reopened at all [1].

What changed

OIG issued the report on September 14 as part of a long-running series of hospital compliance audits, which target hospitals with many claims in categories its data mining flags as high risk [1]. Methodist, a 1,976-bed acute-care hospital, received about $621 million from Medicare for 40,110 inpatient and 97,557 outpatient claims in 2020 and 2021 [1]. OIG built its sampling frame from 6,625 of those claims, worth $62,048,673, in 11 risk areas [1].

From the sample, OIG estimated the hospital’s net overpayment at $18,766,379, with a 90% confidence interval running from $12,499,714 to $25,033,044 [1]. It recommends recovery at the lower limit, which it says is designed to fall below the true total 95% of the time [1]. The draft figure was $13,455,341; OIG cut it after dropping two claims it had faulted under the Two-Midnight Rule [1].

The report also recommends that Methodist audit claims after 2021 in the same risk areas and train clinical and billing staff [1]. Methodist did not concur with the refund or the further audits, and said it would provide staff education [1].

Who it affects

Inpatient rehabilitation drove the result. Rehab claims made up 1,509 of the frame’s claims and $31,295,567 of its dollars, about half [1]. In the sample, 16 of 20 rehab claims had errors, and their $247,457 in overpayments was, by this column’s arithmetic, about 96% of the sample total [1].

For 12 of those 20 stays, OIG’s independent medical review contractor found the patients did not reasonably require supervision by a rehabilitation physician [1]. Medicare rules require a reasonable expectation, at admission, that the patient needs active therapy from multiple disciplines, can take part in and benefit from intensive therapy, is stable enough to do so, and needs a rehabilitation physician’s supervision; the emergency waivers then in effect suspended the second criterion and the “intensive” piece of the third [1]. In one case, a patient admitted after a fall with pelvic fractures managed without surgery had no significant change from baseline, and the reviewer concluded a non-rehabilitation physician could have overseen the recovery [1].

Inpatient coding accounted for 8 of 60 sampled acute-care claims and $8,850 in net overpayments [1]. One admission was coded with atrial fibrillation as the principal diagnosis when cancer-related leg pain caused it, which changed the DRG [1]. Another was coded as a discharge home when the patient went home with home health services, which Medicare can treat as a transfer; that error cost $2,406 [1]. On the outpatient side, 3 of 20 claims were wrong for $619, including a CT of the abdomen and an IV antibiotic with no documented indication [1].

When does OIG extrapolate an audit, and when doesn’t it?

An OIG audit of McLeod Regional Medical Center in Florence, South Carolina, issued September 11, used the same design and came out very differently [2]. OIG sampled 115 claims from a $17,712,188 frame and found 17 errors totaling $38,676 [2]. It reported no projection at all, because the lower limit of its 90% confidence interval was less than the overpayment it had already found in the sample [2]. McLeod’s recommended refund is the $38,676 itself [2].

McLeod had no rehabilitation risk area in its audit. Its errors were mostly inpatient coding: 11 of 85 claims, $33,896, including a principal procedure code for mechanical ventilation lasting 96 or more consecutive hours when the patient had not been ventilated that long [2]. Two outpatient claims billed drugs the hospital received at no cost without reporting them as noncovered charges, worth $3,776 [2].

Congress set the outer rule in 2003. A Medicare contractor may not use extrapolation to set an amount to be recovered unless the Secretary finds “a sustained or high level of payment error” or that documented educational intervention failed, and that finding cannot be appealed [4].

What it means for your practice

The admitting note carries the rehab claim. Methodist argued that OIG misunderstood the rehabilitation physician’s role and should defer to the treating physician’s admission decision unless the record contradicts it [1]. OIG answered that the rule does not require its reviewer to defer, because that “would negate the reasonableness standard” [1]. If you admit to an inpatient rehab unit, your documentation at admission is what a reviewer will weigh against that standard.

Plans of care drew a separate finding. For all 20 rehab claims, the reviewer found the plan of care was not individualized, though OIG did not count that as a payment error and said CMS regulations do not define what “individualized” means [1]. Methodist said it uses templates for consistency and that each plan still documented the patient’s needs [1].

Late discharge assessments are counted but not recouped. Ten rehab discharge assessments missed the five-day deadline; OIG called them compliance errors while leaving the payments allowable [1].

Screening tools are informational. OIG had its reviewer apply InterQual criteria and reported that 19 of Methodist’s 60 inpatient claims and 16 of McLeod’s 85 did not meet them, while stating that failing InterQual does not mean failing Medicare requirements [1, 2].

Self-review timing matters. Methodist said it had already found and refunded 11 claims in a self-review [1]. OIG still counted them toward the extrapolation, because the refunds came after OIG asked for that review at the start of the audit [1].

What to do now

1. Know when repayment starts. OIG’s recommendations are not final; the contractor determines any overpayment, and a provider that appeals does not have to return it until after the second of five appeal levels [1]. The 2003 law bars recoupment until the reconsideration decision, with interest accruing from the original notice if the provider loses [4].
2. Note the 2027 thresholds. CMS set the amount in controversy at $200 for an administrative law judge hearing and $2,000 for federal court review, for requests filed on or after January 1, 2027 [3]. The 2026 figures were $200 and $1,960 [3].
3. Plan any look-back. If an audit points to a related problem in later claims, CMS’s 2024 rule lets a provider suspend the 60-day report-and-return deadline for up to 180 days while it conducts a timely, good-faith investigation of related overpayments [5]. That rule took effect January 1, 2025 [5].
4. Weigh the cost of disputing. McLeod told OIG it may refund the full amount “after carefully considering the time and effort that would likely be required to appeal” [2].

The policy fight

Methodist’s broadest objection is to extrapolation itself. It said the method “creates an unreasonable burden on appeal,” as OIG summarized it, and that medical necessity decisions made claim by claim are not suited to projection [1]. OIG replied that the legal standard is a statistically valid method, not the most precise one, and cited a 1991 appeals court decision upholding sampling where the provider could challenge it on appeal [1].

The hospital also argued that the claims were never properly reopened. It said the letter from Novitas was unsigned, undated and written in the future tense, and that “Novitas has no basis for arguing ‘good cause’ to extend its reopening deadline from one-year from the date of the initial determination (e.g., payment) to four years from the date of the initial determination” [1]. OIG said the regulation imposes no signature, date or tense requirement, that a letter is not even required, and that the contractor’s reopening decision is not appealable [1].

The calendar is part of the dispute. Medicare presumes a provider is without fault, and recovery generally is waived, when an overpayment determination comes after the fifth year following the year the payment notice was sent [1]. OIG’s recommendation excludes amounts presumed unrecoverable under that provision, and it leaves to Novitas whether the presumption can be rebutted [1]. Methodist asked that 2020 claims not legally recoverable be left out of any projection [1]. Neither report says how many dollars that would remove.